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Cost Function Estimation under Risk Aversion

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  • Rulon D. Pope
  • Richard E. Just

Abstract

Standard definitions of the cost function do not admit risk. Standard (ex post) approaches to cost function estimation yield biased and inconsistent estimates when production is stochastic. Recently an (ex ante) approach to cost function estimation with stochastic production has been developed by imbedding the distance function in the cost function estimation problem. We generalize the approach to consider risk aversion in decision making. Only two empirical studies have considered stochastic production in cost function estimation. Both have required constant returns to scale. We demonstrate a methodology sufficiently general to consider nonconstant returns to scale. Copyright 1998, Oxford University Press.

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File URL: http://hdl.handle.net/10.2307/1244502
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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 80 (1998)
Issue (Month): 2 ()
Pages: 296-302

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Handle: RePEc:oup:ajagec:v:80:y:1998:i:2:p:296-302

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Cited by:
  1. Cherchye, L. & Post, G.T., 2001. "Methodological Advances in Dea," ERIM Report Series Research in Management ERS-2001-53-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
  2. Griffiths, William E. & O'Donnell, Christopher J. & Cruz, Agustina Tan, 2000. "Imposing regularity conditions on a system of cost and factor share equations," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 44(1), March.
  3. Just, Richard E., 2003. "Risk research in agricultural economics: opportunities and challenges for the next twenty-five years," Agricultural Systems, Elsevier, vol. 75(2-3), pages 123-159.
  4. Emir Malikov & Diego A. Restrepo-Tobón & Subal C. Kumbhakar, 2013. "Estimation of Banking technology under credit uncertainty," DOCUMENTOS DE TRABAJO CIEF 010938, UNIVERSIDAD EAFIT.
  5. Moschini, GianCarlo, 2001. "Production Risk and the Estimation of Ex Ante Cost Functions," Staff General Research Papers 1922, Iowa State University, Department of Economics.
  6. Lusk, Jayson L. & Featherstone, Allen M. & Marsh, Thomas L. & Abdulkadri, Abdullahi O., 2002. "Empirical properties of duality theory," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(1), March.
  7. Just, Richard E., 2000. "Some Guiding Principles For Empirical Production Research In Agriculture," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 29(2), October.
  8. Just, David R., 2011. "Calibrating the wealth effects of decoupled payments: Does decreasing absolute risk aversion matter?," Journal of Econometrics, Elsevier, vol. 162(1), pages 25-34, May.

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